While home-based travel agents and other small-business owners have been struggling through the economy, they’ve also seen billion-dollar bailouts of banks and automakers. Now, the U.S. government will pay some attention to the little guy as well.
The government is making it easier for companies to get loans from the Small Business Administration by eliminating fees on its most popular loans, known as 7a loans, and guaranteeing a larger portion of the amount borrowed. It's also eliminating fees on what are called CDC/504 loans.
Small businesses will also benefit from the Troubled Asset Relief Program, or TARP, that's been used to bail out banks. The government will use $15 billion in TARP money to buy already issued small business loans in what's known as the secondary market.
That plan, according to SBA spokesman Mike Stamler, will enable lenders to get old loans off their books and allow them to create new ones. The slowdown in credit markets has made it harder for banks to sell their loans and move on to the next borrower.
According to a report in the Associated Press, small-business lending as measured by approvals of 7a loans has plunged over the past two years. In 2007, when the economy was still doing well, just over 99,600 loans totaling $14.3 billion were approved, according to the SBA. Last year, those numbers dropped off to 69,434 loans and $12.67 billion.
So far this year, loan approvals are down 50 percent from the same period of 2008. More than 15,400 loans totaling $3.2 billion have been approved.
The SBA's 7a loan program is intended to help small businesses borrow for a variety of reasons when they haven't been able to get a loan otherwise. The key feature of these is the government's guarantee of a substantial amount of a loan, which removes much of the risk from a bank or other lender.
But even that guarantee hasn't made small-business borrowing easier, Stamler said. So the government is increasing the portion of a 7a loan it will guarantee to 90 percent from the previous amount of 75 percent to 85 percent. The upper limit for guaranteed loans remains unchanged at $1.5 million.
The government is taking these steps recognizing that companies need more help in tougher times. But that doesn't mean a business that is poorly run or on the verge of collapse can now get a loan. As the SBA says on its Web site, a business must be able to show that it has the wherewithal to repay the loan.
"If you couldn't get a loan two years ago, you're not going to get one now," Stamler told AP.
But, he said, "If it's a viable business that is just having immediate financial hardship, and if it can get over the hump for the next three or four months, a lender might see it as a reasonable risk."
The government is also eliminating the fees that borrowers pay on 7a loans and on CDC/504 loans. CDC/504 loans are granted by what are known as Certified Development Companies, which are nonprofit corporations set up to aid the economic development of a community. Small businesses can take out these loans to finance purchases of fixed assets such as buildings or land.
The government does not guarantee CDC/504 loans because the assets serve as collateral.
The higher 7a guarantees and the fee eliminations will remain in effect until Dec. 31 or until the funds allocated for both purposes, approximately $8.7 billion, are exhausted. Stamler said the SBA is estimating that there will be enough funds to last through the calendar year; that means business owners are not under pressure to seek out a loan right now.
The SBA Web site has a section devoted to explaining its loan programs, including eligibility requirements, at www.sba.gov/services/financialassistance/sbaloantopics/index.html. Business owners can also call the SBA at 1-800-827-5722 for information about loans.
Small businesses can get advice on financing and SBA loans from SCORE, an SBA-sponsored organization of retired executives who counsel owners. Its website is www.score.org, and counselors will dispense advice online.
Small Business Development Centers, also sponsored by the SBA, are often located at colleges and universities, and there are more than 1,000 across the country. They can be located online at www.sba.gov/aboutsba/sbaprograms/sbdc/index.html.
Banks that make SBA loans will also have information about the application process and what small businesses need to do in order to qualify for a loan.